Which One of the Following Statements About Convertibles Is True

question 76

Multiple Choice

Which one of the following statements about convertibles is true?

• A) The longer the call protection on a convertible, the less the security is worth.
• B) The more volatile the underlying stock, the greater the value of the conversion feature.
• C) The smaller the spread between the dividend yield on the stock and the yield-to-maturity on the bond, the more the convertible is worth.
• D) The collateral that is used to secure a convertible bond is one reason convertibles are more attractive than the underlying stock.
• E) Convertibles are not callable.

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Definitions:

Operating Activity

Transactions and events related to the core business operations of a company, including revenue generation and expenses related to producing goods and services.

Gain

A financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Indirect Method

A method used in cash flow statements to adjust net income for the changes in non-cash accounts to calculate the cash from operating activities.

Depreciation Expense

Depreciation Expense is an accounting method used to allocate the cost of a tangible asset over its useful life, representing how much of an asset's value has been used up over a specific period.